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Tuesday, December 22, 2015

Schwab Market Update
Schwab Market Update
Schwab Market Update
Charles Schwab: On the Market
Posted: 12/22/2015 4:15 PM ET
Traders Cheer Gains, Hope for Holiday Rally Remains

U.S. equities traded nicely higher amid a backdrop of some mixed economic and equity news, while volume remained on the lighter side as investors look ahead to the Christmas holiday break. Treasuries were lower in the wake of a slight downward revision to 3Q GDP and as existing home sales came in shy of estimates, though a read on regional manufacturing surprised to the upside. Crude oil prices were mixed and gold and the U.S. dollar were lower.

The Dow Jones Industrial Average (DJIA) increased 166 points (1.0%) to 17,417, the S&P 500 Index gained 18 points (0.9%) to 2,039, and the Nasdaq Composite advanced 32 points (0.6%) to 5,001. In moderate volume, 848 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.33 to $36.14 per barrel, while wholesale gasoline decreased $0.04 to $1.17 per gallon and the Bloomberg gold spot price declined $5.72 to $1,072.68 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 98.22.

Chipotle Mexican Grill Inc. (CMG $495) is again being investigated in its link to another series of illnesses in three other states. The Center for Disease Control (CDC) said Monday that it is looking into five other cases in which individuals have become ill with a rare strain of E. coli in Kansas, North Dakota and Oklahoma. A spokesperson for CMG said, "“Since this issue began, we have completed a comprehensive reassessment of our food safety programs with an eye to finding best practices for each of the ingredients we use. We are now in the process of implementing those programs.” The probe comes on the heels of the company still reeling from a spate of recent outbreaks, with 53 people in nine states being inflicted with E. coli that prompted it to shutter its restaurants in Oregon and Washington, and 140 college students falling ill with norovirus from a Boston location. Shares traded sharply lower.

Alphabet Inc. (GOOG $750), formerly known as Google, and Ford Motor Co. (F $14) are reportedly in talks to create a joint venture to build autonomous, or self-driving, automobiles. Ford's CEO Mark Fields is expected announce the cooperative at the Consumer Electronics Show in January 2016, according to Yahoo Autos, citing sources. Neither company has commented on the news. Shares of GOOG were nearly flat, while F closed higher.

Express Scripts Holding Co. (ESRX $87) upped its FY2016 guidance, saying it sees earnings per share (EPS) of between $6.08-6.28, above the $6.05 FactSet estimate. The pharmacy benefit management services holding company also reaffirmed its FY2015 EPS range, which represents 13-14% growth over the prior year. ESRX was lower.

ConAgra Foods Inc. (CAG $41) posted a fiscal 2Q adjusted profit of $0.71 cents per share, above the FactSet consensus of $0.62, on sales of $3.09 billion, which was just below the $3.12 billion consensus estimate. Looking ahead, the packaged food company said it expects adjusted EPS for the current quarter to be "modestly higher" than a year ago, while the FactSet EPS consensus is forecasting 3.4% growth of $0.61 per share. CAG finished slightly higher.

Domestic output revised modestly lower, housing and manufacturing data surprises

The third and final look at 3Q Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 2.0%, revised slightly downward from the 2.1% expansion reported in the second report. This matched the Bloomberg forecast. 2Q GDP expanded by an unrevised 3.9%. Personal consumption came in at a 3.0% gain for 3Q, matching the increase previously reported and in line with forecasts. Personal consumption grew by an unrevised 3.6% in 2Q.

On inflation, the GDP Price Index remained at the 1.3% gain previously reported, while the core PCE Index, which excludes food and energy, was also unadjusted at a 1.3% rise, both figures matching expectations.

Existing-home sales in November surprisingly dropped 10.5% month-over-month (m/m) to a 4.76 million annual rate, its lowest level since April, and compared to the Bloomberg forecast of an increase to a 5.40 million pace. October's figure was adjusted slightly downward to a 5.32 million unit rate from the 5.36 million previously reported. Sales are 3.8% higher y/y. The median existing-home price was 6.3% above a year ago at $220,300, and total inventory fell 3.3% m/m and is1.9% lower year-over-year (y/y). Single-family home sales dropped m/m, but condominium sales were still nicely higher y/y. All four major regions saw declines in sales last month. National Association of Realtors (NAR) chief economist Lawrence Yun cited the pullback in contract signings over the last couple of months for the decline in sales, while also saying, “November home sales without a doubt were heavily impacted by a new federal government rule regarding closing documents,” adding that sales may rebound this month, as “buying interest is there, it’s just that closings are not happening on a timely basis.”

The Richmond Fed Manufacturing Activity Index jumped back into expansion territory (a reading above zero), rising to 6 in November from the unrevised -3 level in October, and compared to the expected increase to 1.

Treasuries were lower, with the yield on the 2-year note advancing 3 basis points (bps) to 0.97%, while the yields on the 10-year note and the 30-year bond advanced 4 bps to 2.23% and 2.95%, respectively.

Preliminary durable goods orders for November will likely headline tomorrow's robust U.S. economic calendar, projected to drop 0.6% m/m, after increasing 2.9% in October. Excluding transportation, orders are expected to be flat, down from the 0.5% advance the prior month, while nondefense capital goods orders excluding aircraft, a proxy for business spending, are expected to decrease 0.2%, after rising 1.3% in October. Also, the docket will offer the latest personal income and spending report, forecasted to show income rose 0.2% m/m during November, down from the 0.4% increase posted in October, while spending is anticipated to have grown 0.3% m/m after rising 0.1% the month prior. Some housing data will come in the form of new home sales, forecasted to have risen 2.0% month-over-month (m/) during November to an annual rate of 505,000 units, as well as weekly MBA Mortgage Applications. Finally, we will receive the final University of Michigan Consumer Sentiment Index for December, forecasted to inch higher to 92.0 from the 91.8 registered in the preliminary release.

Please note: All U.S. markets will trade in an abbreviated session on Thursday, and will be closed on Friday in observance of the Christmas holiday.

Europe and Asia finish mixed on lackluster trading

European equities finished mixed in thin trading amid a lack of catalysts heading into the Christmas holiday, with economic news out of the U.S. tempering earlier gains. News on the economic front in the region had little influence, despite household debt in the U.K. soaring last month, nearing levels not seen since before the 2008 financial crisis, and as consumer sentiment measures were unremarkable, with Germany and the eurozone posting slight upticks to confidence and the U.K. just a shade lower than forecasts. Meanwhile, stocks in Spain rebounded somewhat from yesterday's solid declines that came on the heels of general elections over the weekend that came to a confusing conclusion. Oil & gas issues were among the best performers amid a slight uptick in crude oil prices. The euro was higher versus the U.S. dollar, while bond yields in the region were higher.

Stocks in Asia finished mixed in a quiet trading session, as a dearth of news coupled with subdued trading heading into the holiday period failed to provide any directional cues. China's Shanghai Composite Index and the Hong Kong Hang Seng Index both saw modest gains with the conclusion of nation's Central Economic Work Conference having little impact on sentiment, despite a number of reforms coming out of the meeting that hinted toward more stimulus coming from the government. Meanwhile, Japanese equities ticked lower, showing little reaction to the government's economic projection for FY2016, which forecasted a solid improvement in GDP growth, as well as an increase in inflation for the year, as last week's Bank of Japan's monetary policy meeting, which was viewed by some to be underwhelming, continues to dampen sentiment of aid from the country's central bank. Schwab's Chief Global Investment Strategist Jeffrey Kleintop provides analysis of central bank positions and moves for the year in his article How Rate Hikes Impact International Stocks Markets, at, while you can also follow Jeff on Twitter: @jeffreykleintop. Elsewhere, stocks trading in Australia, South Korea and India finished higher.

The international economic docket for tomorrow will be limited to releases from across the pond, with GDP and consumer spending from France, industrial orders and retail sales from Italy and GDP, the current account, business investment and the Index of Services from the U.K.

Schwab Center for Financial Research - Market Analysis Group

©2015 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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